Lawsuit Advance Payments

[samingeorgia]

Here in the Atlanta area there is a company that advertises to provide money to people who have lawsuits pending while they wait for their cases to grind through the courts and settlement to occur.

The thing that piques my curiosity is this: they say that if you lose your lawsuit, you do not have to repay the funds. So I'm wondering if these people will be taxed on these funds as cancellation of debt income.

I'm curious what you guys think.  

[SaraEA]

My hunch is that this company won't pay anyone unless winning the lawsuit is a sure thing. (Defendant was drunk, ran a stop light, and slammed someone's car, in front of 100 witnesses.)  Even then, they probably pay a small fraction of what the suit is for, and charge a huge amount for the loan.  In the unlikely event the borrower does lose the case, the company has to write it off as an expense so they likely will issue a 1099 of some sort.  Most likely a 1099C, because the borrower probably signs a contract pledging to repay the money, but maybe a 1099MISC.

Is this type of business legal???  I know terminally ill people can sell their life insurance policies for part of the face value, but that trick is highly regulated.  Looks like someone saw an opportunity here, had the capital, lawmakers never foresaw the possibility of doing this so never wrote regulations. Seems no different than payday loans, which ripped people off big time until policymakers woke up and wrote some laws.

[ILLMAS]

Here is a sample of the fine print:

Disclaimer: Please note that pre- and post-settlement litigation financing advances are not loans. Pre- and post-settlement litigation financing advances fall into the category of funding known as “non-recourse funding.” Repayment of litigation financing advances is contingent on winning or settling the lawsuit. If you lose your case, you owe F&@? ® nothing.

 

[easytax]

21 hours ago, SaraEA said:

My hunch is that this company won't pay anyone unless winning the lawsuit is a sure thing. (Defendant was drunk, ran a stop light, and slammed someone's car, in front of 100 witnesses.)  Even then, they probably pay a small fraction of what the suit is for, and charge a huge amount for the loan.  In the unlikely event the borrower does lose the case, the company has to write it off as an expense so they likely will issue a 1099 of some sort.  Most likely a 1099C, because the borrower probably signs a contract pledging to repay the money, but maybe a 1099MISC.

Is this type of business legal???  I know terminally ill people can sell their life insurance policies for part of the face value, but that trick is highly regulated.  Looks like someone saw an opportunity here, had the capital, lawmakers never foresaw the possibility of doing this so never wrote regulations. Seems no different than payday loans, which ripped people off big time until policymakers woke up and wrote some laws.

SaraEA,      Business has been around for more than 30 years plus (outside regular legal community) - around much longer with just some "legal" providers doing this type business.

A good company (they are regulated) is usually as Illmas has shown does NOT treat this as a loan (just an advance against POSSIBLE settlement dollars). Yes the "charges" are high and typically clients are actually "pushed" to NOT USE this financing source if they have ANYOTHER type of monies available because of the high charges.    The clients attorneys' are typically involved as they must supply a lot of information on the suit for the advancement company to consider Before the case is accepted.

SaraEA,    As you seem to like new ideas and information - I am will PM you some OLD LINKS to my web page describing some of the business. (NOTE: I am out of this because of some medical things, but got involved 20 + years ago).